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Is the Fed's News Perception Different from the Private Sector's?

30 Pages Posted: 8 Aug 2017  

Gabriela Best

California State University, Fullerton - Mihaylo College of Business & Economics

Pavel S. Kapinos

Federal Reserve Bank of Dallas--Financial Industry Studies

Date Written: August 7, 2017

Abstract

The recent literature on monetary policy has dedicated considerable attention to modeling agents' processing of information about the future in real time. This paper contributes to this growing strand by investigating the implied differences in the so-called news shocks estimated from the standard New Keynesian dynamic stochastic general equilibrium (DSGE) model using the real-time datasets from the Survey of Professional Forecasters (SPF) and the Federal Reserve's Greenbook (GB) forecasts. These specifications with the SPF and GB forecasts aim to model the private sector's and the Fed's expectations of future macroeconomic outcomes and aid with the identification of news shocks. Our results indicate that while the demand news shocks have very similar distributions in the two datasets, the monetary and supply news shocks from the models estimated on the GB data tend to be larger than those from the SPF. These findings suggest that the Federal Reserve's forecasting methods allow for more variation in future outcomes than the SPF's. These findings mesh well with the extant literature on the superiority of the Fed's forecasts relative to the private sector's and provide a structural explanation for the source of this superiority.

Keywords: New Keynesian Model, Monetary Policy, Anticipated Shocks, Real-Time Forecasts

JEL Classification: E31, E32, E52

Suggested Citation

Best, Gabriela and Kapinos, Pavel S., Is the Fed's News Perception Different from the Private Sector's? (August 7, 2017). Available at SSRN: https://ssrn.com/abstract=3014998

Gabriela Best (Contact Author)

California State University, Fullerton - Mihaylo College of Business & Economics ( email )

P.O. Box 6848
Fullerton, CA CA 92834-6848
United States

HOME PAGE: http://www.gabrielabest.com/

Pavel Kapinos

Federal Reserve Bank of Dallas--Financial Industry Studies ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

HOME PAGE: http://https://sites.google.com/site/pavelkapinos/

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